Prysmian S.p.A.'s (BIT:PRY) 28% Jump Shows Its Popularity With Investors

Prysmian S.p.A. (BIT:PRY) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 2.4% over the last year.

Following the firm bounce in price, Prysmian's price-to-earnings (or "P/E") ratio of 21x might make it look like a sell right now compared to the market in Italy, where around half of the companies have P/E ratios below 14x and even P/E's below 9x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Our free stock report includes 2 warning signs investors should be aware of before investing in Prysmian. Read for free now.

Recent times have been advantageous for Prysmian as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Prysmian

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Prysmian.

How Is Prysmian's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Prysmian's is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a terrific increase of 33%. The strong recent performance means it was also able to grow EPS by 117% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 21% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 15% per year, which is noticeably less attractive.

With this information, we can see why Prysmian is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Prysmian's P/E?

Prysmian's P/E is getting right up there since its shares have risen strongly. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Prysmian's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Prysmian that you should be aware of.

If you're unsure about the strength of Prysmian's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.